Report IFRS - Heineken and Carlsberg

Summary
Introduction..........................................................................................................................................3
1 Economic Characteristics.............................................................................................................4
1.1 5+1 Porter’s forces for big brewing companies.....................................................................4
1.1.1 Threat of New Entrance: LOW......................................................................................4

1.1.2 Threat of substitutes: LOW............................................................................................5
1.1.3 Bargaining power of buyers: LOW................................................................................6
1.1.4 Bargaining power of suppliers: HIGH...........................................................................6
1.1.5 Rivalry among existing firms: HIGH.............................................................................6
1.1.6 +1 → Public authorities: HIGH......................................................................................7
1.2 Conclusion.............................................................................................................................8
2 Strategy Analysis..........................................................................................................................9
2.1 Heineken’s Products..............................................................................................................9
2.1.1 BCG matrix by geographical zone.............................................................................11

2.1.2 BCG matrix by type of beverage..................................................................................12
2.2 Technology required to bring products to the market.........................................................14
2.2.1 Marketing.....................................................................................................................15
2.2.2 Cost structures..............................................................................................................17
2.3 Heineken’s knowledge base................................................................................................18
2.4 Heineken’s ESG performance.............................................................................................20
2.4.1 Corporate Governance Mechanisms............................................................................20

2.4.2 CSR Performance........................................................................................................23
2.5 Key value drivers.................................................................................................................27
3 Accounting Analysis..................................................................................................................29
3.1 Identify significant accounting changes and their impact on financial statements.............29
3.2 Checklist - Financial Statement Positions...........................................................................30
1
3.2.1 General Questions........................................................................................................30
3.2.2 Balance Sheet (Assets).................................................................................................30
3.2.3 Balance Sheet (Liabilities)...........................................................................................33
3.2.4 Balance Sheet (Equity).................................................................................................36
3.2.5 Income Statement.........................................................................................................40
3.3 Summary and criticism on the accounting analysis.............................................................46
4 Ratio Analysis............................................................................................................................48
4.1 Profitability ratios................................................................................................................48
4.2 Financial Structure ratios.....................................................................................................50
4.3 Liquidity ratios.....................................................................................................................51
4.4 Risk ratios............................................................................................................................52
4.5 Capital Market ratios...........................................................................................................53
4.6 Conclusion...........................................................................................................................54
Conclusion..........................................................................................................................................55
References..........................................................................................................................................56
Appendix............................................................................................................................................63
Appendix 1.....................................................................................................................................63
Appendix 2.....................................................................................................................................64
Appendix 3.....................................................................................................................................65
2
Introduction
As part of the course on International Financial Reporting Standards (IFRS), we were asked to
prepare a report on the financial statements of two companies operating in the brewing industry:
Heineken and Carlsberg. To develop this report, we followed four main points.
First, the economic characteristics, using Porter's 5+1 forces, that helps us to analyze and
understand the competitive environment of the brewing industry.
Second, we deepened the strategy through a detailed analysis. We had to analyze the business
activities in detail, including knowing the business, knowing the technology required to bring
products to markets, knowing the firm's knowledge base, and knowing the firm’s ESG performance.
The identification of actual and potential value drivers will also be part of this section. For a better
analysis we asked ourselves if those value drivers are sustainable and what the company needs to
achieve to stay competitive in the future.
Third, we worked on the accounting analysis. In this part, we will identify the significant
accounting changes and their impact on financial statements, by going through the “Checklist -
Financial Statement positions” and see if there are red flag indicators.
Finally, we concluded our report with an analysis of financial ratios. For this section we had to
analyze the profitability, liquidity, financial structure, risk and capital market of the company using
self-selected accountancy ratios. As a conclusion of this part, we will have to compare the results
between the 2 companies and make conclusions which company is better positioned.
Regarding items 2 and 3, we decided to focus on the Heineken company, while for the financial
ratios analysis we made a careful comparison between the two companies and then concluded with
the ranking of them in relation to the whole industry.
3
1 Economic Characteristics
The brewing industry is a global market that produces and sells alcoholic beverages, primarily beer,
through various brewing techniques and processes. The industry is highly competitive, with
numerous players ranging from large multinational corporations to small microbreweries. Beer is
one of the oldest and most popular alcoholic beverages in the world, and its popularity continues to
grow, driven by new and innovative flavors, rising disposable incomes, and changing consumer
preferences. The industry has seen significant technological advancements in recent years, allowing
for greater efficiency and consistency in the brewing process. Environmental sustainability and
responsible consumption have become important considerations for many companies in the
industry, and there has been a growing trend towards organic and craft beer production. The
brewing industry is highly regulated, with governments setting standards for product safety,
labeling, and marketing. Many countries have specific laws and regulations that govern the sale and
distribution of alcoholic beverages, including age restrictions, taxation, and distribution channels.
Overall, the brewing industry continues to evolve and adapt to changing consumer preferences,
technological advancements, and regulatory environments, making it an exciting and dynamic
industry to watch.
The brewing industry is a key player in the alcoholic beverage industry as it is responsible for
producing beer, which, as we said before, is one of the most consumed alcoholic beverages
worldwide. In addition, the success of the brewing industry can give a relevant impact on the
overall market. Beer has a long history of being a popular beverage and is enjoyed by people of all
ages and backgrounds.
1.1 5+1 Porter’s forces for big brewing companies
1.1.1 Threat of New Entrance: LOW
Brewing market is saturated.
Craft beer industry: composed principally by regional breweries and microbreweries, this industry
has had a very fast growth rate this past decade, but now the market is getting saturated and the
4
growth rate has slowed down. It represents 26% 1 market shares (in US) but leaders own some of
these companies, so they don’t truly represent a threat.
Barriers at entrance:
 Bar and restaurant link by contract to a specific supplier
 Mass retailing very competitive
 High level of regulation for alcohol beverages and food items
 Special taxes on beer (20% standard rate2)
 Middle to high starting investment for a microbrewing company (30’000 euros 3) and they
are not a direct threat for big companies.
1.1.2 Threat of substitutes: LOW
Low:
Beer consumption is a social and cultural habit. Habits can change over time and the increased
awareness of the health risk of alcohol consumption could lead customers towards alcohol free
beverages. However, big brewing companies have already answered to this threat by developing
their offer in alcohol free beer. They have entered the market well and are registering good growth.
Middle:
Wine and spirits are direct competitors to beer. Together they are the most consumed alcoholic
beverages in the alcohol market. All three are consumed worldwide and this diversity of drinking
habits reduces the risk of beer being substituted by wine or spirits. For example 4, in Italy, beer
consumption tends to increase at the expense of wine or spirits. But in another country like
Denmark, wine is the drink that is increasing at the expense of the other two types of alcoholic
beverage. Therefore, the global trend in beer consumption compared to wine and spirits is
fluctuating but moderately.
1
Craft beer share of U.S. beer market 2021. https://www.statista.com/statistics/1093653/craft-beer-dollar-share-of-us-beer-market/#:~:text=In
%202021%2C%20craft%20beer%20accounted,in%202021%2C%20at%2026.8%20percent.
2
Taxation des boissons. https://entreprendre.service-public.fr/vosdroits/F32101 and Tax on shopping and services. https://www.gov.uk/tax-on-
shopping/alcohol-tobacco
3
Ouvrir une micro brasserie : étape par étape. https://www.thebusinessplanshop.com/fr/blog/ouvrir-une-micro-brasserie
4
See Appendix 1 for details. These data are for explanatory purposes only and are not recent enough to be taken as representative of the current
situation.
5
1.1.3 Bargaining power of buyers: LOW
Low:
Despite the fact that buyers can switch their taste from one type of beer to another, like the market
share of lagers is declining in favor of IPAs, brewing companies make all kinds of beers. Even if a
customer changes brand because of the small price difference, big brewing companies own a lot of
different brands to diversify this specific risk.
The quality of the product and the taste are an important factor for buyers. Switching cost is low,
but quality wise, it can be high depending on the consumption preference.
The number of buyers is huge. Distributors could have power over the producers, but they have to
offer a large variety of products due to the demand preferences.
Middle:
Beer is not a necessary product.
1.1.4 Bargaining power of suppliers: HIGH
High:
Glass and Can industry: shortage in these industries is an issue for brewer companies.
The quality of the material has a direct impact on the quality of the product and the consumer
experience.
This industry is very dependent on malt suppliers. The quality of the product makes the switching
cost high. Even if there are a lot of producers of malt in the world, quality is an essential factor to
choose your specific supplier. If the company chooses a specific malt supplier, it will be very
difficult to change suppliers if they decide to increase their prices. The choice of suppliers will
affect the taste of the product.
1.1.5 Rivalry among existing firms: HIGH
High:
Brewing market is saturated. There are 10 major companies in the market.
6
In Europe, which is the largest market, a lot of microbrewing exists and are competing on the local
market.
Very innovative market with a lot of variety among the different existing firms. All companies
launch new products on the market regularly. Means that companies have to be proactive in their
R&D department.
Growth of the market has decreased due to the Covid-19 situation. But the industry expects a return
to the pre-covid situation with steady growth over the next 10 years5.
1.1.6 +1 → Public authorities: HIGH
High:
In exceptional situations, like Covid-19, some countries completely banned the consumption of
alcohol beverages. However, in other countries, the bars and restaurants were closed, so the industry
has suffered severe losses during this period.
Some countries ban advertising of alcoholic beverages (India, China, the U.K., and others). And in
other countries, advertising is subject to limitations.
Taxation on alcoholic beverages is high. It’s subject to a lot of discussion on public health and is
one of the most targeted products, with cigarettes, in taxation matters.
Middle:
In normal time, the legal age of alcohol consumption in each country is an issue for the beverage
industry but concerns only a minor part of the targeted audience.
5
Beer Market Size, Industry Share, Growth Rate, Forecast by 2030. https://www.fortunebusinessinsights.com/beer-market-102489
7
Fig. 1: 5+1 Porter’s Forces for Brewing Industry
1.2 Conclusion
The 5+1 Porter’s forces show that some threats were handled with the growth of 10 different
companies which share the major part of the market and own most of the middle to big size brewers
in the world. The non-alcoholic beer was developed with success in the non-alcoholic beverages.
And classic beer has a big part in the alcoholic beverages market. The size of the market lowers
some of the bargaining powers. The diversification in the product responds to the bargaining power
of the buyers. The uniqueness of each product makes the strength of each company but gives
bargaining power to the suppliers. Glass bottles, metal cans and malt producers have a part to play
in the quality of the final product which increases the switching cost of suppliers for the beer
companies. Finally, the authorities have the most bargaining power of all with the heavy regulation
that rules the alcoholic products.
8
2 Strategy Analysis
2.1 Heineken’s Products
Heineken is a company which is mostly operating in the brewing industry. The Heineken holding
company owns a large portfolio of beverages. They commercialize more than 300 brands across
190 countries. They have their own well-known brand of beer among other brands they own. Most
of their products are classic beers. However, as the market evolves, they have diversified their
activities. They now also possess some cider brands and are developing non-alcoholic versions of
their classic beers. Finally, Heineken possesses unique beer, such as Desperados which is a tequila
infused beer. In addition, Heineken owns registered trademarks for all the brands they possess.
Brands are an important asset for Heineken. They represent one third of the intangibles.
As mentioned before, the beer market is competitive and dominated by the 10 biggest groups.
Heineken has a 12%6 market share worldwide. They are the second biggest behind Anheuser-Busch
InBev which owns 31%7. For comparison, Carlsberg owns 6%8 and is third. Moreover, the global
beer market is growing and so is the demand. The global demand for beer in general is inelastic. In
2014, it was approximately -0.59, but it has probably not evolved much.
As the beer market is really saturated, there are a lot of brands and types of beer. Therefore, nearly
all of their products have substitutes. In general, beers are replaced with the same type of beer but
from a different brand. Low or non-alcoholic beers, produced under any of the brands they own, can
easily be substituted with similar products from other brands, because many popular brands have
their own non-alcoholic versions. Beers without alcohol can also be substituted by other non-
alcoholic beverages.
The brand name association with the products is obvious for the beers they sell under the brand
Heineken itself. As the products of the other brands they own, they are typically associated with
6
Beer vendor market share worldwide 2021 https://www.statista.com/statistics/257677/global-market-share-of-the-leading-beer-companies-based-
on-sales/
7
Ibid
8
Ibid
9
Price elasticities in alcoholic drinks. https://www.euromonitor.com/article/price-elasticities-in-alcoholic-drinks
9
their respective brand identities, rather than with Heineken as the parent company. Most people do
not even know that these beers actually belong to Heineken. Even on their official website, they
only disclose a small number of brands as theirs. Most of the brands they own are not even
mentioned on the website. This is where one of the strengths of Heineken lies. The brands in the
group can substitute one another as they are not associated.
In 2022, they sold a total of 256.9 million hectoliters (256’900 million liters) across all of their
brands. Since 2018, this number has been growing. However, there was a setback in 2020, during
the Covid-19 pandemic.
Heineken is active in more than 70 countries. Their operating activities are divided into four
geographical areas. Here we have the sales, revenue and profit for each region.
AREA Sales volume Revenue Profit
(in million hectoliters) (in million €) (in million €)
2022 2021 2022 2021 2022 2021
Africa Middle East 39.2 mhl 38.9 mhl 4.005 m 3.159 m 554 m 442 m
and Eastern Europe
Americas 88.5 mhl 85.4 mhl 9.421 m 7.226 m 1.391 m 1.215 m
Asia Pacific 48 mhl 29.4 mhl 4.652 m 2.764 m 1.235 m 753 m
Europe 81.2 mhl 77.5 mhl 11.362 m 9.494 m 1.221 m 1.160 m
The sales volume has increased in all four areas in 2022. This can be due to the introduction of
already existing products in new markets, as well as new products or new product lines. In addition,
the global beer consumption is also increasing. We can analyze the performance of these regions
with a BCG matrix.
10
2.1.1 BCG matrix by geographical zone
Cash cows Stars

 Americas  Asia pacific
 Europe
Dogs Question marks

 Africa Middle East and Eastern Europe
Stars:
 The beer market is growing in the region of Asia Pacific. Heineken is one of the market
leaders there. Asia Pacific is Heineken's fastest growing market. Between 2021 and 2022,
they have nearly doubled their net revenue and operating profit. In Asia, there is a
preference toward low-alcohol beer. Heineken growth in this region could be attributed to
the launch of new low-alcohol products such as Heineken Silver on this market. Moreover,
they claim that their brand Tiger is the number one beer in the Asian market.
Cash cows:
 The Americas account for a third of Heineken’s sales. The region is second in terms of
profit for Heineken. The market is growing at a much lower rate than in the Asia Pacific
area. Heineken claims that they were able to increase their market share in key countries in
Latin America such as Brazil and Mexico. Heineken is not as strong in the USA as it is
elsewhere, but they still hold a key position there with Heineken 0.0.
 Europe is the region in which Heineken originates as the company was created in
Amsterdam in 1864. The beer market in Europe is still growing. The growth rate is steady,
but it is not as high as in Asia. Europe is the first region in terms of revenue and profit. They
commercialize some popular brands in Europe such as Desperados or Birra Moretti. The
Heineken brand is also a market leader there.
Question marks:
 The Africa Middle East and Eastern Europe region is more complicated to analyze because
it is wide and there are some cultural differences towards alcohol. We can assume that the
11
sales in the Middle East are really low and that Africa and Eastern Europe are the value
drivers of this region. They also have different strategies for these different parts of the
region. On the one hand, Heineken decided to leave the Russian market in 2022 because of
the war in Ukraine and on the other hand they are affirming their presence in Africa. The
African market is a new opportunity to explore for brewing companies. Heineken is
currently investing in new projects in Africa. The profit for this region is yet quite low
compared to the other operational areas.
Dogs:
 In our analysis, we found that none of the operational regions were dogs. The beer market is
still growing worldwide and Heineken is a market leader with a very strong international
presence.
After an analysis of the geographical areas, it is interesting to analyze the products. As Heineken
possesses more than 300 brands, we based our analysis on categories of products. The performance
of certain individual brands may differ from the global performance of the Heineken group in these
types of products.
2.1.2 BCG matrix by type of beverage
Cash cows Stars

 Lager  Non-alcoholic beer
Dogs Question marks

 Cider
 Flavored Beers
Stars:
 The non-alcoholic beer market is growing faster than the beer market. According to the
Heineken website, Heineken 0.0 is the leader in market share. Moreover, Heineken has also
introduced versions without alcohol for most of their popular beers. Besides, non-alcoholic
beers are in the growth stage of the product life cycle.
Cash Cows:
12
 The analysis of Heineken’s Lagers can be ambiguous, given that a substantial portion of
their product portfolio consists of lager brands. Lager is the most consumed type of beer in
the world. The market is really saturated as there are a lot of brands, but it is still growing.
Their individual Lager brands may be really profitable and others might cause a loss. The
classic Heineken Lager is a good example of a cash cow. It holds a large market share as it
is one of the most popular beer brands in the world. The Heineken brand represents around
20% of the group sales volume. Since 2018, the sales have grown from 38.7 to 54.9 million
hectoliters, which is about a 40% growth rate. It is sold everywhere unlike the other brands
and is popular around the world. It has been on the market for a long time and is still
popular. Therefore, it is still in the maturity phase. They also have growing new brands in
various markets across the world. Overall, lagers represent the majority of Heineken’s sales.
Question marks:
 The customer’s interest towards cider is increasing. Even though this beverage is still less
popular than beer, it is a fast-growing market. Cider can be viewed as a gluten-free
alternative to beer. It is appreciated among people who do not like the taste of beer.
Heineken is in the process of developing their cider portfolio. In 2022, it was only produced
locally in 15 markets. In 2022, Heineken sold 5 million hectoliters of cider. It is five times
less than beer. It does not represent a great source of income for Heineken yet.
 Flavored beers have been the trend for a few years. This type of beer has gained popularity
among the younger generation that has reached the legal drinking age. They show different
consumption habits than the older generation. Heineken is not really focused on flavored
beers. The only flavored beer they own is the tequila infused beer Desperados. However, in
contrast to other flavored beers on the market, it has a relatively high alcohol content of
5.9%. This market can represent a new opportunity for Heineken.
Dogs:
 None of the product categories sold by Heineken appear to belong to this category.
However, some individual brands might be in the decline phase of the product life cycle and
therefore be classified as a dog.
13
2.2 Technology required to bring products to the market
As beer is a consumer good, its production involves a complex process. In order to make a classic
beer like the Heineken Lager, you need two cereals: barley and hops. You obviously need water as
it is a beverage. Finally, you need yeast for the taste. In this case they have their own Heineken A-
Yeast. Then there are a few steps to follow in order to brew your beer correctly.
Before you start brewing, the barley should be malted by soaking it to allow the grains to germinate.
Then it is heated gently to dry it out. This process takes a few days. Heineken does not carry out this
part of the process in their breweries. Instead, they purchase barley that is already malted. The
selection of the malt is a crucial step as it influences the color and the taste of the beer.
Then, this malted barley is crushed. After that it is mixed with hot water. This process is called
mashing because it creates a mash - a mixture of grains and water. This mix is held at a specific
temperature, in order to activate enzymes to transform starches into fermentable sugars. Mashing is
a quick step as it only takes about an hour. At this step other grains can be added too depending on
the type of beer. It is not the case for the Heineken Lager.
The mashing results in a sweet liquid called wort. It must be separated from the rest of the grains.
The filtering process is called lautering.
Then the wort is poured in a brew kettle and hops are added. Boiling is also a crucial step as a lot of
chemical reactions take place during this process. The bitterness of the boiled hops balances to the
sweetness of the wort. At the end, the mixture is drained again to keep only the liquid and it is
transferred to another container to cool. This is useful to create a good environment for the yeast.
The next step is fermenting. It is during this step that the wort becomes beer. Yeast is added to the
cooled wort in a fermenting vessel. Here for the Heineken Lager, the fermentation is done in a
vertical container, but most other beers use a vertical one. With the yeast, the liquid ferments and
the sugars are transformed into alcohol and carbon dioxide.
After that, the beer is conditioned or cellared in cold tanks for a few weeks. The duration and the
way this step is done depends on the type of beer you want to make. For the Heineken Lager it lasts
28 days. During this step the beer can also be filtered.
14
When the beer is ready, you have to choose a form of packaging. It can be bottled, canned or racked
into kegs to be served as draft beer. The Heineken Lager is sold in all three forms.
There are two methods in order to produce non-alcoholic beer. You can either restrict alcohol from
forming during fermentation by adding special yeasts or you can brew a normal beer and remove
the alcohol afterwards. Heineken uses the second method to make Heineken 0.0 and the other non-
alcoholic beers.
This is a standard brewing process. Most of Heineken’s brands use a process similar to this one.
The process is different for cider as it is the result of apple juice fermentation. It will not be
explained in detail because it is not the main sector of activity for Heineken.
Fig. 2: Heineken Lager production process
2.2.1 Marketing
As part of their Marketing strategy Heineken are sponsoring major sports events. They are mainly
active in football and motor sports. They sponsor the UEFA Champions League, the UEFA
Women’s Champions League and Euro. In motorsport, they are official sponsors of Formula 1 and
Formula E. They have also sponsored the 2019 rugby world cup. During that event, they sold
special bottles of Heineken Lager with the flags of the participating countries on it. They also did
the same things during the UEFA Euro 2020. Part of their marketing campaigns are based around
these events.
15
Fig. 3: Heineken’s marketing campaign during the 2019 Rugby World Cup
Heineken is known for their advertising. Their commercials are often fun and people remember
them. In their advertising they use current social topics. In their campaign “Cheers to All”, they
play with gender norms. It consists of a series of promotion videos diffused on television and on
social media. In the advertisements, a bartender mistakenly gives a woman a cocktail and a man a
Heineken beer resulting in drink swap as it was not what they ordered.
As a company who sells alcoholic drinks, they use the drunk driving problematic in their marketing.
They use these campaigns to promote the Heineken 0.0 but not always. Sometimes, it is just used as
a preventive aspect to not drink and drive.
As an example, we can mention their campaign “The Night is Full of Great Drivers” 10, which
features two Formula 1 drivers: Daniel Ricciardo and Sergio Perez. In the video we can see the two
drivers leaving a party in a taxi. When the camera comes back to them, they are replaced by two
ordinary guys. The slogan of this ad is “It’s when you feel like a great driver that you shouldn’t
drive.” They used the slogan to raise awareness about overconfidence in one's abilities when drunk.
This example shows that they also have key partnerships with celebrities that are in accordance with
the brand image.
They also used this issue as part of the “Now You Can” 11 campaign, when they launched the
Heineken 0.0 in 2017. This campaign describes situations where you can now drink a Heineken
including when you drive. In the annual records, it is claimed that the responsible consumption
campaigns reached 1.2 billion consumers in 2022.
10
The Night is Full of Great Drivers. https://www.youtube.com/watch?v=ZT4JKBqrxFw
11
Now You Can. https://www.youtube.com/watch?v=KNZCe3I_X7o
16
Fig. 4: Heineken 0.0 sponsorship of Formula 1
Heineken is facing some supply chain challenges. China's zero Covid-19 policy and the war in
Ukraine, has put pressure on the supply chain. The availability of resources is limited and prices are
rising. These events exposed companies to supply disruption risks. In the annual reports they
disclosed having supply chain difficulties such as disruption in the USA. Globally, the sale to the
final customer is done through wholesalers. However, there is no unique model of distribution for
Heineken. It depends on the country.
2.2.2 Cost structures
Since beer is a consumer good, we assume that variable costs associated with the production
process are the main expenses driver. For Heineken raw materials in themselves are the main source
of expenses. Their main variable cost is packaging. They do not make that part of the finished
product themselves and it is expensive. In the fixed costs, they have depreciation expenses for
property, plant and equipment. It is linked to the fact that they have a high value of property, plant
and equipment as they need dedicated structures and facilities for the production of their goods. To
all these costs we can add the personnel expenses which are mainly wages and salaries. Revenues
and expenses will be analyzed in detail in the accounting analysis.
As a group, Heineken has opportunities to make various economies of scale. However, most brands
they own are not available internationally or at least not worldwide. By owning local brands all over
the world they do not reduce their production costs. Despite that, they can still make economies in
packaging. The cans for most brands are the same and for the bottles even though they are different
17
for each brand, they can still buy them from the same supplier. As they advertise for their products
under the name of the individual brands, they do not make economies of scale in the field. They
could make economies in Research and Development by sharing knowledge between the brands.
They declared being able to make productivity gains in the supply chains department in the near
future as they are currently assessing the costs and structural inefficiencies.
2.3 Heineken’s knowledge base
Today’s technological change comes with digitalization. Heineken has already made changes in that
field. They have improved their capabilities in eCommerce. In 2023, they will continue to deploy
eBuisiness-to-business platforms as they call it. They are online platforms dedicated to B2B
business in order to improve customer experience for businesses.
They also worked on their data analytics skills. In 2018, they launched a program called “the
connected brewery” with the aim to digitalize the supply chain. In 2022, 50 breweries were
connected to Heineken data layers which allowed them to create smart algorithms. In addition to
that they are developing Internet Of Things networks to control some installations.
By 2028, Heineken plans to implement a new digital technology architecture, which is currently in
development. This system would involve an enterprise resource planning (ERP) system completed
by specific cloud platforms. Moving all operating companies within this system, would facilitate the
standardization of certain business practices and enhance the company's agility and efficiency.
In 2022, they spent 193 million euros in research and development. About 80% of this amount was
spent towards digital and new technology projects. It shows that digitalization is an important issue
for the group.
Fig. 5: Heineken’s Annual Report 2022, page 165
Heineken is known as an innovative company because they frequently launch new products and
product lines under their brands, as well as their acquisition of companies operating in key and
trendy markets.
18
For the past few years Heineken has been focusing on creating non-alcoholic versions of their beers.
On one hand, they aim to continue in this direction by introducing these already existing
alternatives to new markets. On the other hand, they want to continue to develop their offer in low
to no-alcohol drinks. They want to improve the taste of these drinks and make them less bitter. The
company has plans to expand their product offerings beyond beer, with a particular interest in
exploring the cider market. In the next few years Heineken has the ambition to launch new product
lines like they did with the Heineken Silver in 2022. In the process of going beyond alcohol, they
launched a new malt-based energy drink in Africa.
As a large group focused on similar products, they can transfer the knowledge between one another.
The fact that they were able to launch many non-alcoholic versions of multiple brands in a few
years may be attributed to the sharing of knowledge regarding new production processes. Research
programs can be aggregated. This can prevent repeating the same experiments and the same
failures.
In 2022, they launched a new line of their original brand the Heineken Silver. It is a new lager
under the Heineken brand. The product is designed to be extra-refreshing in comparison to the
classic Heineken Lager. This new beer is brewed at a temperature of -1 Celsius. Even though
Heineken does not disclose how this new process actually works, it is said to allow the filtering of
proteins and tannins. As a result, the taste is lighter and less bitter, hence the fresh aspect. In
addition, this new lager also contains less alcohol. With this they aim to go towards new consumer
preferences.
As we know, beer tastes better when it is cold. Therefore, refrigeration plays a crucial role in the
process of delivering the product to the customer. They have developed a prototype for a fast-
cooling technology. It would be able to cool a beverage in 30 seconds.
To enhance creative ideation, Heineken initiated the Brewhouse project, in which it collaborates
with diverse stakeholders such as entrepreneurs, students, and suppliers to develop new products or
technical innovations aimed at transforming the production process.
2.4 Heineken’s ESG performance
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2.4.1 Corporate Governance Mechanisms
Heineken's top management is organized into a two-tier system. There is an Executive Board of two
executive members and a Supervisory Board of ten non-executive members. These two Boards are
independent from each other. The Company’s Corporate Governance statement in the Annual
Statements is made in accordance with the Dutch Corporate Governance Code since the
headquarters of Heineken are in the Netherlands. The Company is organized into four distinct
operational regions, namely Africa Middle East & Eastern Europe, Americas, Asia Pacific, and
Europe. Each of these regions is administered by a president. The Executive Board, the four
presidents and the 5 chief officers form the Executive Team.
The function of the Executive Board is to manage the company. It is composed of Dolf van den
Brink, the CEO and Chairman and Harold van den Broek, the CFO. The latter was appointed in
2021. They are accountable to the Supervisory Board and the Annual General Meeting (AGM).
Moreover, they are appointed by the AGM and they can also be removed. One of the two members
is nominated CEO/Chairman by the Supervisory Board. According to the Code, an Executive Board
member should not be appointed for more than four years at a time, the same rule is applied for
reappointments. The Supervisory Board has put in place a schedule to avoid that the two members
retire at the same time.
As its name suggests, the duty of the Supervisory Board is to supervise and provide guidance to the
Executive Board. Its mission consists of monitoring the achievement of goals, risks linked to
business activities, the reporting method, compliance with the law and other social measures that
matter to the company. The Supervisory Board has five committees (Preparatory, Audit,
Remuneration, Selection & Appointment and Sustainability & Responsibility) to prepare the work
for the decision-making. The Supervisory Board conducts an assessment of the corporate strategy
and the risks to the business at least once a year. Similarly to the Executive Board, the Supervisory
Board is appointed and can also be dismissed by the AGM. The Chairman is appointed by the
members.
The board members are all supposed to be independent from one another. It is in the company
beliefs that the direct line descendants of Mr. A.H. Heineken need to be fairly represented in the
Supervisory Board, even though these people cannot be considered independent. In the 2022 Board,
only six members can be qualified as “independent”. On the one hand, 50% of the members have
20
been part of the board for less than 5 years, on the other hand 30% have been there for more than 12
years.
The Annual General Meeting of the Shareholders is held in Amsterdam six months after the end of
the financial year. This year it was held on April 20th. The AGM discusses and adopts policies
about the management report, remuneration policies for the Executive Board and Supervisory
Board, the Remuneration Report, financial statements, discharge of board members, and profit
appropriation.
In terms of diversity, the two Executive Board members are men and in the Supervisory Board four
out of ten are women. The four geographical area presidents are all men. In the five Chiefs
executive, only two of them are women. In senior management positions, 27% are women. The
Supervisory Board has rules about background diversity. At least one of them has to be a financial
expert and have the necessary knowledge to manage listed companies. Heineken has a “Diversity
Policy of the Supervisory Board, Executive Board and Executive Team”, in which it is emphasized
that the boards should be diverse in terms of nationality, gender and background.
Fig. 6: Heineken’s Executive Team
The remuneration of the Executive Board is determined by the Supervisory Board in accordance
with the Remuneration Committee. The Supervisory Board receives a fixed annual remuneration
determined by the AGM. It is around 100’000 to 150'’000 euros a year. Heineken has a
performance-based Long Term Incentive Plan (LTIP) that annually awards share rights to the
Executive Board and senior management. The vesting rights are related to the performance of
Heineken on specific focus points during a three year period. During this period, there are no
21
dividends on these shares. For the 2022 to 2024 period, the performance will be rated on organic net
revenue growth, earnings per share growth, free operating cash flow and combined ESG-related
measures. All points are equally weighted in the performance calculation. In 2022, Heineken
granted 431’038 shares for a total of 20 million. Moreover, 500 more shares were granted as part of
the Extraordinary share plans for senior management.
Fig. 7: Heineken’s Annual Report 2022, extract note13.3
The Executive Board remuneration consists of a fixed salary and a variable component, which is
also composed of a short-term and the long-term incentive described in the previous paragraph. The
short-term incentive is established as 75% on financial and operational measures and 25% on
individual leadership measures set by the Supervisory Board each year. In 2022, the CEO's total
remuneration amounted to approximately 9 million euros, while the CFO received 6 million euros 12.
As a company operating mainly in one industry, they are exposed to many risks. Most of the risks
that affect Heineken are aligned with those present within the industry. The diversification of the
product portfolio can be seen as a form of risk management. Developing no- and low-alcohol beer
can protect from more restrictive legislation against alcohol. It can also protect from changes in
customer preferences. The low association between their brands can protect against reputational
risk. On the one hand, international presence can allow hedging risks inherent to certain countries or
regions and on the other hand, it creates exposure to foreign currency risks.
In 2022, managers around the world received training in diverse fields. Heineken aims to train
managers to inclusive practices to promote awareness and comprehension of inclusive methods.
Managers have been trained through e-learnings and workshops. In some countries all managers
have been trained. In October 2022, they launched a new e-learning module called ALL-inclusive
Leadership. At the end of the year, it was completed by 16% of all managers.
12
See Appendix 2 for details.
22
In 2022, almost 10’000 employees were trained on anti-bribery measures. Anti-corruption training
is also part of the annual Code of Business Conduct training, which was completed by 81’000
people in 2022.
2.4.2 CSR Performance
Heineken has developed their “Brew a Better World 2030 Strategy”. This strategy includes a series
of environmental, social and responsibility goals. These goals follow the UN 17 Sustainable
Development Goals.
Fig.8: Materiality Matrix
In this matrix, they categorized their sustainability issue according to how they impact their
business and the stakeholder interest. This influences their priorities in terms of sustainable
development in general.
In their strategy, they aim for zero impact on the environment. They want to reduce the carbon
footprint of the whole value chain including key stakeholders throughout the process. Within that
scope, they aim to reduce by 30% carbon emissions and to reach zero net carbon emissions in 2040.
In 2021, they had reduced their emission by 2%. They said that they were able to reduce their
carbon emissions in production by 17% since 2018. In 2022, they were on the Carbon Disclosure
Project Climate Change A List for leadership in environmental transparency on climate change.
23
The manner in which they disclose these figures is somewhat ambiguous. They divided their carbon
emissions into three scopes. The first scope accounts for 6% of the total emissions, the second for
2% and the third for 92%. In the first pages of the annual reports, the company congratulates itself
for reducing the scope 1 and 2 emissions by 18% in 2022. What they don’t mention until the
sustainability report is that they only reduced the third scope emissions by 0.4%. When you
aggregate these numbers, you find that they only reduced their total emissions by 2% in 2022.
They also make progress with renewable energy. In 2022, 37% of the combined electrical and
thermal energy consumption came from renewable sources. In the annual reports, it is said that they
are investing in the construction of solar panels and other sources of renewable energy to supply
their breweries throughout the world.
Heineken claims that 73% of the barley and hops come from sustainable sources. The goal is to
reach 100% in 2030. The company's standards for sustainable agriculture are based on the
Sustainable Agriculture Initiative Platform principles (SAI). This involves producing safe, high-
quality agricultural products while protecting the natural environment, improving social and
economic conditions, and preserving the health and welfare of farmed species. They engage with
farmers through their suppliers.
They also have the goal to reduce waste to landfill for all production sites. They aim to reach zero
waste in the production process in 2025. Most of the waste material is biodegradable. 80% of their
production waste is transformed into annual feed. The non-edible parts are transformers into soil
fertilizers. They also have started packaging waste initiatives. 38% of their packaging is now
returnable. However, this does not mean that they will be returned by customers. This year, they
should announce a new strategy about creating value with waste.
Another of their environmental goals is to have healthy watersheds around the world. Beer
production requires a lot of water. They have already reduced their water consumption in the
production process. They went from 5 to 3.3 liters to produce one liter of beer.
Concerning social matters, we already discussed diversity at the highest level of the hierarchy. Still,
diversity among personnel is important too. Men still represent two thirds of the total workforce. If
we consider the market size, the diversity in nationalities is fairly well-balanced. However, in senior
management we can see that Europe is over represented. One possible explanation for this is that
24
their headquarters are located in the Netherlands. They claim that 65% of their leadership teams in
each area are locals.
Fig.9 : Types of diversity among Heineken’s employees
In the Brew a Better Strategy, they have goals towards diversity. They aim for 30% of women in
senior management 2025 and 40% in 2030. Nothing is mentioned for the global workforce.
One of their 2023 goals is to give all their employees a fair wage. By definition, a fair wage is often
higher than a minimum wage. In 2022, Heineken assessed the wages in Europe for the first time
because of the inflationist trend. With this goal of fair wages, comes the matter of equal pay. In
2023, the objective is to close any pay gaps. At the end of 2022, they said that all operating
companies have identified pay gaps and have started their action plans.
Heineken believes that one way of supporting local communities is to pay taxes. In 2022, they paid
14.9 billion euros of taxes in total. Their tax strategy follows a few principles. The first one is
simple, they must comply with the relevant laws from each appropriate country. Taxes are expected
to be paid in the country where the operating activities take place. They also should abstain from
using take havens to avoid paying taxes elsewhere.
In 2022, two fatalities were reported among the contractor personnel on-site. In 2021, there were
also two fatalities: one on-site contractor and one company employee. In terms of working
accidents, there were 877 accidents in company personnel and 257 in contractor personnel. There
were 717 and 212 accidents in 2021. Heineken attributes the rise in working accidents to the
acquisition of new businesses in India, as well as the impact of Covid-19 quarantine measures on
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the 2021 figures. The principal categories of work-related injuries include cuts caused by sharp
objects, injuries due to carrying and transporting heavy objects, slips or falls and hits by falling
objects or vehicles. Most of these injuries happen in the logistics and distribution department.
They have also set objectives related to responsible alcohol consumption. The innovation in non-
alcoholic beers is included in this strategy. In 2023, they aim to have non-alcoholic versions of two
key brands in 90% of the markets. Heineken 0.0 was available in about 110 markets in 2022. They
are developing partnerships with NGOs to prevent harmful use of alcohol such as addiction and
underage drinking. They have a standard practice to spend at least 10% of their media expenses
toward responsible and moderate alcohol consumption. In 2022, they spent about 11%. The
marketing campaign “The night is full of great drivers is an example of what they do in this area.
Heineken also has a rule for the events they sponsor. They can sponsor an event if only less than
one-third of the viewers are minors.
To support all these claims, Heineken has a Code of Business Conduct. This code contains basic
principles that all employees must respect. To complete the Code of Business conduct there is a
various list of underlying policies that specify certain points related to a specific field. For example,
they have a Responsible Marketing Code, a Supplier Code, a Human Rights Policy and a few more.
To be notified when there might be violations of these policies, they have put in place the Speak Up
service. Anybody inside or outside the company can report a violation of the code of conduct.
On paper this system seems to be working well. However, in reality there are violations of these
policies that cause scandals when they are uncovered. In March 2021, an inspection of the Brazil
authorities revealed a labor violation by one of their transportation service providers called
Transportadora Sider. Heineken Brazil found that Sider was in violation of their Supplier Code of
Conduct that they had signed. Heineken Brazil immediately took action to provide accommodation,
financial and emotional support for their impacted employees. They also reduce close to zero their
business with Sider. Other sources claim that it was a case of slave labor of immigrants and that
Heineken Brazil is responsible for making sure Sider complies with labor obligations in the future.
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2.5 Key value drivers
After conducting the analysis of all aspects of Heineken's business, we can identify key value
drivers.
 Diversification: In a highly competitive market such as the brewing industry, Heineken

differentiates itself by owning a diverse portfolio of brands. They also own a few product
types. In the last few years, they have expanded their portfolio by launching new products
and buying new brands. Moreover, they are innovating in the non-alcoholic beer sector.
Customers are more likely to find a product that corresponds to their preferences in
Heineken’s products. Furthermore, all these brands are not associated with one another in
the consumer’s mind.
 Global presence: Unlike other beer groups Heineken is present worldwide. Heineken does
not only own well-known international brands but also local brands that are only
commercialized in a selection of markets. This brand model enables satisfying consumer’s
demand throughout the whole world while accounting for cultural differences. This accounts
for Heineken's position as the second-largest company in global market share.
 Parent brand: The Heineken brand is quite strong. It represents about one fifth of the group’s
sales volume. It has been on the market for a long time and is still popular among
consumers. Moreover, it is sold in more than 180 countries across the world. Additionally,
the company benefits from its strong brand image. This is why reputation is important for
Heineken as they cannot afford damage to the parent brand image.
 Responsible Marketing: Heineken is known for creating advertising campaigns that carry
preventive messages. An important part of their marketing is aimed toward responsible
drinking and driving. They invest considerable amounts in responsible marketing each year.
The main characteristic of Heineken's advertising is that despite conveying preventive
messages, they are presented in a light and enjoyable setting. As a result, this engenders a
positive brand perception.
In order to stay competitive and hold their second place in worldwide market shares, they will have
to explore new opportunities. As they are present in 190 countries, they do not really have the
opportunity to expand to new markets. Nevertheless, the company can strengthen its position in
27
growing markets and introduce existing products into other markets if they align with customer
expectations. As customer’s consumption habits are changing with the new generation, exploring
new products will be crucial for Heineken. We saw that they are developing new and more
accessible product lines. In the upcoming years, it will be imperative for them to ensure the
sustainability of their cider expansion and to strengthen it. They also could explore the flavored beer
segment as it is now popular among young adults. For other aspects, such as marketing, supply
chain, innovation, and ESG, they should continue to perform as they are currently doing.
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3 Accounting Analysis
3.1 Identify significant accounting changes and their impact on financial statements
Heineken's Financial Statement is prepared following the rules of the International Financial
Reporting Standards (IFRS) used in the European Union, it also complies with the requirements
included in Part 9 of Book 2 of the Dutch Civil Code.
In 2022 there were no changes in accounting policies that had a major impact on Heineken's
consolidated financial statement.
In this economic year there were external events that led to changes in the financial statement.
On March 28, 2022, the Heineken group announced its decision to leave the Russian market, after
the war with Ukraine. This led to an impairment loss of 88 million euros recognized in relation to
the write down of the Russia disposal group.
The second event that Heineken had to consider is the hyperinflation situation in Ethiopia. For the
entire year, the inflation has remained above 25%13.
The past investment in Ethiopia generated, in 2022, 44 million euros of net expenses in fixed assets
due to hyperinflation accounting adjustment. An IAS rule has been applied (IAS 29 “Financial
Reporting in Hyperinflationary Economies”). These impacts are recorded as exceptional items.
Heineken sells only reel products which means that they had to use the general price index to
calculate the changes in the purchase power. The different changes that it implicates will be
discussed further.
13
Hyperinflation in Ethiopia is the product of cascading missteps. https://qz.com/africa/2185006/inflation-in-ethiopia-has-remained-above-25-
percent-for-a-year
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3.2 Checklist - Financial Statement Positions
3.2.1 General Questions
DO FINANCIAL STATEMENTS ALLOW A TRUE AND FAIR VIEW? I N OTHER WORDS, ARE THERE
ANY INDICATIONS FOR HIDDEN RESERVES (ANY RED FLAGS)?
The opinion of an external audit is that the consolidated financial statement gives a true and fair
view of the financial position of Heineken.
The corporate governance statement with the executive board statement concludes to the same
opinion of fair view of their assets and liabilities.
So with this we can tell that Heineken operates without hidden reserves.
3.2.2 Balance Sheet (Assets)
WHICH INVENTORY ACCOUNTING METHOD IS USED (FIFO, LIFO, OR AVERAGE COST )?
Cost of inventories are based on a weighted average cost. These costs include the cost of acquisition
of the product in the inventory, the cost of production, the cost of transformation and other costs
related to the product present in the inventory.
HOW ARE TANGIBLE ASSETS MEASURED (COST VS REVALUATION MODEL )? DOES THE
STATEMENT PROVIDE INFORMATION ON THE PURCHASE PRICE , RESIDUAL VALUE ,
ACCUMULATED DEPRECIATION / AMORTIZATIONS , THE DEP/AMO. METHOD?
In the Consolidated Financial Statement of Heineken company, tangible assets are Property, plant
and equipment and are split into owned assets and Right of Use (ROU) assets. Owned assets are
recognized when it is probable that future economic benefits associated with the PP&E will flow to
the company and when the cost of the asset can be reliably measured. Right of Use assets are leased
assets and constitute a minority of the assets.
PP&E are recognized at historical cost minus the accumulated depreciation and impairment losses.
By historical cost they mean all the costs link to the purchase of an asset which means that they are
using the cost model.
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Depreciation is calculated using the straight-line method, based on the estimate of the useful life of
the asset class. Buildings are estimated to have a useful life of 15 to 40 years, Plant and equipment,
5 to 30 years and other fixed assets will be estimated at 3 to 10 years. Heineken uses an estimated
useful life and residual value to allocate the cost of all other PP&E.
UNDER WHICH CIRCUMSTANCES ARE INTANGIBLE ASSETS CAPITALIZED WITHIN THE BALANCE
SHEET ? HOW ARE THEY MEASURED ? IS THERE A PERIODICAL IMPAIRMENT TEST FOR THE
ASSETS ?
Intangible assets are mainly constituted by goodwill, brands and customer-related intangibles such
as customer lists. The other intangibles are software, research and developments and others.
Accounting policies on the recognition on the intangible assets:
 Goodwill: It represents the difference between the fair value of the net assets acquired and
the transaction price. Goodwill is measured at cost less accumulated impairment losses.
 Brands, customer-related and contract-based intangibles: if it is part of a business

combination (ex. merger) it is recognized at fair value. Otherwise, it is recognized at cost
and amortized on a straight-line basis over its estimated remaining useful life.
 Software, research and development and other intangible assets: If purchased, it is

recognized at cost minus accumulated amortization. If it is developed internally, it is
capitalized when it qualifies as development activities, otherwise, it is recognized in profit
or loss when incurred.
Amortization is calculated on the cost of the asset less its residual value. On a straight-line basis
following these estimations of useful lives:
 Strategic brands 40-50 years
 Other brands 5-25 years
 Customer-related and contract-based intangibles 5-25 years
 Re-acquired rights 3-12 years
 Software 3-7 years
 Capitalized development costs 3 years
There is only an impairment test for goodwill and it is done annually.
31
Impairment test for goodwill:
The amount of the goodwill is divided by regions (Europe, America, Brazil, Africa with Middle
East, Asia Pacific and India) plus the Head Office. Regions are called Cash Generating Unit (CGU).
The test consists of comparing the carrying amount of each CGU to the recoverable amount of the
CGU.
The recoverable amounts are based on the higher of the fair value less costs of disposal (FVLCD)
and value in use (VIU) calculation.
94% of the recoverable amount of the Goodwill are based on a VIU model. To calculate the value
in use (VIU), they use the future cash flows generated from the continuing use of the CGU using a
pre-tax discount rate. And a few assumptions are made for the calculation of the VIU which
concern how they estimate their cash flows to 10 years and after 10 years, the beer prices depending
on the region and the inflation.
For other than goodwill:
The intangible assets other than goodwill, their useful life has to be determined:
 For brand, it is based on the market position.
 For customer-related intangibles, they have to estimate the remaining useful life of the
customer relationships.
 For contract-based intangibles, it is the period of the contractual arrangements.
 For software/development expenditure, the estimation is made on the technological and
commercial development.
Amortization is charged to profit or loss on a straight-line basis over the estimated useful life.
The independent auditor’s report makes an observation on the testing of intangible assets and
property, plant and equipment. Due to the fact that they are both based on estimates made by the
management, the auditors evaluated the exactitude of these estimates. After a thorough assessment,
they concluded that there was no bias in the estimate of the recoverability of intangible assets and
PP&E.
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3.2.3 Balance Sheet (Liabilities)
FOR WHICH RISK HAS THE COMPANY MADE PROVISIONS ? HOW ARE THEY CAPITALIZED AND
MEASURED ? ARE THERE SUBSTANTIAL REVERSALS OF PROVISION ?
A provision is recognized by Heineken when there is a present legal or constructive obligation

resulting from past events that can be reliably estimated, and it is probable (>50%) that an outflow
of economic benefits will be required to settle the obligation. For business combinations
accounting, provisions are also recognized when the likelihood is less than probable but more than
remote (>5%).
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation, using a pre-tax rate that reflects the time value of money and the risks specific to the
obligation. The increase in the provision due to the passage of time is recognized as part of net
finance expenses.
Fig. 10: Heineken’s Annual Report 2022, extract note 9.2
The result of 150 million euros in the balance as of 31 December, 2022 in the Claims and litigation
provision is explained mainly by the labor case in Brazil discovered in 2021. This covers principally
the provision used during the year and the provision reversed during the year.
Restructuration are recognized when it is approved in detail and when it is publicly announced or
commenced.
33
No further details or explanation are given for the movement in this section. The only details found
in the notes of the annual report is that restructuring provisions used have been registered as
exceptional expenses.
To explain these changes, we have made some supposition based on external sources rather than the
annual report.
A few restructuration were announced in 2022. One in France, with the closure of the Schiltigheim
brewery and one other in Romania. For both, the production will be transferred to other existing
production sites located in other parts of the country. These closures can explain the provision made
during the year, in anticipation of cost for the coming years.
There are too many different factors to make an assumption about the provisions used. It could still
be the impact of Covid-19, but you also have to take into account the increase in raw material prices
and surely other factors.
Tax legislation is often complex and subject to interpretation. It is why Heineken has some experts
calculating the risk profile of tax legislation in each country and depending on the result, they can
decide to make a provision. They have a tax principle which the expert follows and it ensures a
consistent judgment of the tax system for every country. The 283 million euro of tax provision is
mainly due to the taxes system in Brazil which is very complex and changes often.
The independent auditors have assessed the tax provision and have concluded that it has no
reportable findings which means that they evaluated the judgment of the risk from Heineken to be
acceptable.
A provision for onerous contracts is recognized by Heineken when the anticipated benefits from a
contract are less than the unavoidable costs to fulfill its obligations under the contract.
To measure the provision, they compare the present value of the expected cost of terminating the
contract and the expected net cost of continuing the contract. They take the lowest in between both.
Prior to establishing a provision, any impairment loss on the assets related to that contract is
recognized by Heineken.
Other provisions include provision for credit risk on surety and guarantees.
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IS THERE INFORMATION ON OFF-BALANCE -SHEET OPERATIONS SUCH AS CONTINGENT
LIABILITIES ?
Heineken has contingent liability which are off-balance sheet operations because of uncertainty of
occurrence or because the risk of loss is estimated lower than 50%, meaning not probable but higher
than 5%, so possible. (This doesn’t concern the business combination transaction).
Their main contingency concerns taxes, civil cases and guarantees.
Taxes:
Like for provision, the tax system in Brazil and more generally in Latin America is very complex
and its why contingency can occur. It includes a high number of cases with a risk assessment lower
than probable but possible. So, it doesn’t qualify for a provision but for a contingency. The amount
of tax contingencies that could be estimated for 2022 is 1’489 million euros for which 73 million
euros qualifies for indemnification.
Civil cases:
In 2022, the main contingency of civil cases concerns the Brazil labor case (explained in point 2).
The estimation of the potential financial impact is 57 million euros.
Other:
Part of other contingencies relate to an old civil case in Greece, dating from 2014. There is still a
financial impact that could result from this case, but the estimations are difficult to do because of
the complexity of the case and the multiple actors playing in it.
Guarantees:
35
Guarantees to banks for loans relates to loans advances to customers, which are given to third
parties, external to the company. Heineken provides guarantees to the banks to cover the credit risk
related to these loans.
Other guarantees concern the acquisition of Distell Group Holding Limited
3.2.4 Balance Sheet (Equity)
HOW IS THE EQUITY STRUCTURED (E.G. COMMON STOCK , CAPITAL SURPLUS , TREASURY
SHARES , AND RETAINED EARNINGS )? ARE ALL CHANGES IN EQUITY TRACEABLE?
The Balance Sheet equity is divided into two main sections: Shareholders’ equity and non-
controlling interests.
Shareholders’ equities are subdivided into 9 accounts: share capital, share premium, translation
reserve, hedging reserve, cost of hedging reserve, fair value reserve, other legal reserves, reserve for
own shares and retained earnings.
Fig.12: Heineken’s Annual Report 2022, Consolidated Statement of Changes in

Equity
36
In the following paragraphs there are reported details on these accounts and changes that have
occurred during the period.
Shares that composed the share capital are fully paid. One share of capital equals one vote at
shareholder meetings of the company. The nominal value of one share and the number of shares
didn’t change during the year.
Share premium amount didn’t change during the year which probably means that the number of
shares didn’t change.
Translation reserve is made to cover the difference in currency for the assets and liabilities of
foreign operations and value changes of the hedging instruments. 384 million euro of other
comprehensive income have been registered during the period and no further details are shared in
the notes. This reserve stays deeply into the negative with -3’619 million euro on 31 December
2022, but it has increased since the past year. The reason for this significant negative reserve is not
mentioned in the notes.
Hedging reserve covers the reserve for the hedging instruments, where the hedged transaction has
not yet occurred. A small change of 1 million euro was registered under other comprehensive
income.
Fair value reserve covers the changes in the fair value through other comprehensive income
(FVOCI) equity investments. When the FVOCI equity is recognized, the amount is transferred from
the fair value reserve to the retained earnings. 14 million euros earnings have been registered under
other comprehensive income.
Other legal reserves relate to the share of profit of joint ventures and associates, on which Heineken
doesn’t have control. The movement in this reserve corresponds to the share of profit in joint
ventures and associates minus dividend received. When there are legal issues in the transfer of
retained earnings from a subsidiary, a legal reserve is recognized in this section. A part of this
reserve is used for capitalized development costs. 208 million euros profit was made from the joint
venture and associates and registered in this reserve and the 94 million euros received as dividend
was deducted.
Reserve for own shares comprises the treasury shares held by Heineken. The number of treasury
shares has increased by 276’349 which equals to a purchase of 43 million euro of own shares. 20
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million euros of own shares were then distributed as a payment to shareholders (as dividends),
meanwhile the other 23 million euros of purchase is not explained in the notes.
A lot of movement is registered in retained earnings:

 Hyperinflation restatement
 Profit of the company and the profit of joint ventures and associates
 Other comprehensive income /loss
 Transfer to retained earnings coming from other legal reserves
 Dividends to shareholders: the amount of the dividends distributed is related to the
development of the net profit before exceptional items and amortization (net profit beia).
The dividend amounts to 30-40% of net profit beia.
Dividends declared and paid amounts to 840 million euros in 2022. The transaction is
registered as an expense in the retained earnings. Dividends are distributed in two payments:
the first payment was made on 11 August 2022 as an interim dividend of 0,50 euro per
share, and the second payment will have to be approved at the annual general meeting the 2 nd
May 2023 and will be proposed at 0,96 euro per share. In conclusion the total dividend
payment for the year 2022 has increased by 276 million euros.
 Own shares delivered (explained above)
 Share-based payments
 Acquisition of non-controlling interests: this mainly concerns the purchased shares of Grupa
Zywiec S.A. from Harbin B.V amounting to 350 million euros. The 41 million euros
concerns other purchased shares of joint-ventures or associates.
 Hyperinflation impact of the situation in Ethiopia
 Changes in consolidation which are not significant for 2022
Non-controlling interests concern the shares held by the companies in consolidated subsidiaries.
The movements in this account are not commented on but are not abnormal compared to the
previous period.
IS THERE ANY INFORMATION ON OTHER COMPREHENSIVE INCOME ITEMS (FOREIGN CURRENCY
TRANSLATION , DERIVATIVES AND HEDGES , FINANCIAL INSTRUMENTS , POST -EMPLOYMENT
COMPENSATION (E.G. PENSION PLANS))?
The table of consolidated statements of other comprehensive income gives all the details on what is
included in OCI.
38
Fig.13: Heineken’s Annual Report 2022, Consolidated Statement of OCI
Information concerning some of these sections can be found in the notes:
 Currency translation differences concern the foreign currency transactions and the foreign
operations.
o In the foreign currency transaction, only the foreign currency differences come from
re-translation of Fair Value through Other Comprehensive Income (FVOCI)
investments and financial liabilities used as a hedge of a net investment.
o In the foreign operations, every foreign currency difference is recognized in OCI

except for operations concerning non-controlling subsidiaries.
 Share of OCI of associates/joint ventures. In details Heineken has made 17 million euros
with the joint ventures and has lost 63 million euros with the associates.
And they specify at the bottom of the table if the OCI is attributable to the shareholders of the
company or to the non-controlling interests.
Not all the items above are commented on but the details of the taxation of these items are described
in this table below and the main movements in OCI have substantial information in the notes.
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3.2.5 Income Statement
WHICH REVENUES AND COSTS BELONG TO THE OPERATING ACTIVITIES?
Operating activities includes:

1. Operating segments
2. Other income
3. Raw materials, consumables and services
4. Personnel expenses
5. Amortization, depreciation and impairments
6. Earnings per share
1- Operating segments
The operating activities are divided into segments: Europe, Americas, Africa, Middle East &
Eastern Europe, Asia Pacific and Head office & Other/Eliminations.
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Revenues
Europe is the segment that brings the most of the revenues followed by Americas. The overall
consolidated net revenue shows an increase of 30.89% from 2021 to 2022. They have calculated an
operating profit which is not a financial measure in accordance with IFRS. This information is only
meant for the managers.
The revenues are mainly generated by the sale and the delivery of their product. Their main
products are beer, soft drinks and cider. Other revenues come from rental income from pubs and
bars, royalties, income from wholesale activities, pub management services and technical services
to third parties. All of these other revenues are recognized in profit or loss in the consolidated
income statement.
Expenses
In the operating segments table, only the excise tax expenses are deducted before the net revenue.
Then to calculate the operating profit, net finance expenses are also deducted.
Excise tax expense is a tax that is common in the beverage industry but different depending on the
country the product is sold. Most countries tax the product when it is moved from a bonded
warehouse and not based on the sale value. In this case, taxes are not always entirely passed on to
the client's price. But it cannot be reclaimed if the product is not sold. For these countries, excise tax
is registered in the expenses. In other countries where the tax is levied at the moment of the sale, the
cost is deducted on the revenue.
A further precision is made for the excise tax. Not all excise tax expenses are included in revenues.
2’333 million euros have been collected on behalf of third parties. Therefore, these expenses are
excluded from revenue.
2- Other income
Other income amounts to 147 million euros (consolidated statement). Other income comprises gains
on sales resulting from transactions that are not derived from contracts with customers and are
therefore reported separately from revenue.
It concerns the gain on sale of PP&E, intangible assets, sale of subsidiaries, joint ventures and
associates and previously held equity-interests. No tax credits have been registered for this period.
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The change from the previous period is significant (-1’374 million euros) but is explained by the
takeover of United Breweries Limited in India in the year 2021. In 2022, no main takeovers have
been made which explain this difference from the two periods.
3- Raw materials, consumables and services
The changes from the precedent period in this section are mainly due to inflation. These changes are
described in the table below:
Other expenses include:
 Consulting expenses
 Telecom and office automation
 Warehousing expenses
 Travel expenses
 Other taxes
 Short-term lease
 Low-value lease
4- Personnel expenses
These expenses contain the wages and salaries of the 86’390 employees excluding contractors. The
table below describes in detail what is contain in personnel expenses:
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The expenses related to defined benefit plans include the current service cost, the past service cost
and the administration expense of the present value of net obligation.
Equity-settled share-based payment plan sections refer to the share-based payments. Their system to
calculate these sections is detailed in the notes. They have three different plans, long-term incentive
plan, extraordinary share plan and marching share plan. Each plan has different rules for the
calculation and at the end it is recognized in personnel expenses. They defined “long-term” as three
years, which is why the final calculation of the total expense recognized in personnel expenses
regroups the share rights granted from 2020 to 2022.
Changes in the personnel expenses are not unusual compared to the previous period.
5- Amortization, depreciation and impairments
PP&E section is the sum of the depreciation of PP&E and the impairment of ROU assets of 254
million euros.
Intangible assets were discussed above.
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Assets classified as held sale concerns only the impairment loss related to the Russian situation.
6- Earnings per share
The determination of earnings per share (EPS) for the period ending December 31, 2022, relies on
the net profit attributable to the shareholders of the Company and the average number of shares
outstanding (both basic and diluted) during the fiscal year ending December 31, 2022. Changes in
this section are not commented on.
WHAT DOES THE FINANCIAL RESULT CONSIST OF ? HOW IMPORTANT IS IT FOR THE COMPANY?
Financial results include interest income, interest expenses, other net finance income and it is called
net finance expenses. The table below shows the detail of the financial result:
Interest income is not commented on in the notes. Compared to the interest expense, they are not
significant.
Net finance expenses are mainly interest expenses that are related to interest charges over the
outstanding bonds, commercial paper and bank loans, which are the main components of their
borrowing.
Other net finance income/(expenses) is detailed in this table. The net monetary gain arising from
hyperinflationary economies concerns the situation in Ethiopia.
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Executive board has two main focuses. One is to create long-term sustainable growth and
shareholder value. And the second is to maintain a tight focus on short-term financial results. Which
means it has a great importance in the global strategy of the firm.
DO YOU HAVE INFORMATION ON NON-RECURRING /EXTRAORDINARY ITEMS ?
Under International Financial Reporting Standards (IFRS), the concept of extraordinary items has
been eliminated. IFRS does not permit the classification of items as extraordinary items, and there
is no specific section or line item for reporting extraordinary items in the income statement. Instead,
we find exceptional items, which are defined by Heineken as items of income and expense of such
magnitude, nature, or incidence that their disclosure is relevant in explaining the company's
performance during the year. These items in 2022 generated 114 million euros as net benefit, this
includes:
 A net impairment of 132 million euros, including a write-down of 234 million in Papua New
Guinea and an impairment of 88 million in Russia
 A net restructuring charges of 70 million euros
 A special net gain of 44 million euros was recognized as a reduction in marketing expenses
related to Brazilian tax credits
 A special charges of 44 million euros related to accounting adjustments for hyperinflation in
Ethiopia
 52 million euros of other net exceptional net benefit
These expenses and benefits are unusual but closely related to the business routine and have,
because of their magnitude, an impact on the company’s profit and in 2022 it brings a positive
contribution of 114 million euros as net benefit.
Nevertheless, compared to 2021 this net benefit decreased from 1’355 million euros to 114 million.
The biggest changes were, as mentioned earlier, the tax credits in Brazil that decreased the
exceptional net benefit (from 187 million euros in 2021 to 44 million), the 44 million euros of
exceptional expense due to hyperinflation in Ethiopia (0 in 2021), a very important change in other
net exceptional benefit (from 1’308 million euros in 2021 to 52 million), but this is not explained
and as last an impairment reversal of 234 million euros for Papua New Guinea which is also not
explained in the financial report.
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3.3 Summary and criticism on the accounting analysis
After completing the “Checklist”, we can criticize and comment on some abnormal movements or
information found in Heineken's financial statements.
The general questions did not reveal any red flags, according to the report of the external audit, and
no accounting changes were registered during the period.
The analysis of the balance sheet assets revealed some concerns. While the inventory method used
is not unusual for a business selling physical products, the estimation of the useful life for tangible
and intangible assets has a wide range. For example, the expected useful life of a building is
estimated between 15 to 40 years. It is not clear whether they assess the real useful life for each
building or not. The intangible assets measurement and capitalization are well detailed in the notes,
but the amortization of the intangible assets also uses some estimation of the useful life, which has
the same problem as for tangible assets. For example, other brands (meaning not the strategic
brands) are estimated to have a life expectancy of 5 to 25 years. Some of the details of the
impairments may give more details on how to evaluate this useful life. However, it is not explicitly
written that they use the same tools to assess the amortization estimation and the impairment
estimation. Then the impairment testing of the goodwill has been evaluated by the external audit
and has been reported as having no bias. Like said before, the impairment on the other intangible
asset than goodwill has some useful information on the estimation they make and this all seems
normal.
In the analysis of the balance sheet liabilities, the restructuring provision is the second biggest of all,
but no details are specified in the notes. It is also the provision with the most movement and none
are commented on. It would have been useful to have this information to evaluate the importance of
this provision. The off-balance sheet operations are well commented on and justified.
In the equity section of the balance sheet, all the equity was structured in the way we would have
expected it to be. The traceability was well established with a clear consolidated statement of
changes in the equity. However, some amount was not well explained and could raise concerns. The
transaction reserve amounts to -3’619 million, which is not inconsistent with the 2021 amount, but
which is not explained. Why do they have a reserve which is so much into the negative? Even in the
past rapport statement, this reserve is not commented on. The reserve for own share is explained
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partly but almost half of the reserve is not explained. This lack of consistency on the comments of
the reserve is a negative point of their income statement.
The operating activities in the income statement analysis were well commented and detailed in the
notes and the financial result was coherent with the past period. However, the report of the
supervisory board stating that their main focus was "creating long-term sustainable growth and
shareholder value, while maintaining a tight focus on short-term financial results" is not consistent
with a negative net finance income, which is a short-term financial result. Again, this can raise
some concerns on what the Executive Board says and what it is actually done in the enterprise.
Finally, the exceptional items section raised red flags concerning a case in Papua New Guinea and
some restructuring matter. The biggest movement in this section concerns a case in Papua New
Guinea and no comment of any kind was made in the annual rapport. The amount is 234 million
euros of exceptional losses that are not explained. Adding to that is the restructuring charges of 70
million euros which made us question even more the restructuring provisions. A movement of -77
million is registered in this provision which is declared as a use of the provision during the year.
Maybe the exceptional items and the movement in the provision are linked but no comments are
made confirming this hypothesis.
Overall, the accounting analysis reveals some concerns and areas where more explanation is
needed.
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4 Ratio Analysis
For the ratio analysis, we started by calculating all the different ratios with the help of an excel
table14. By doing so, it was easier for us to see which data were most interesting for our analysis.
We therefore decided to consider just a few of them per category.
We also looked for ratios for the brewing industry, unfortunately without success. The searches
always led us to the US-focused brewing industry, or to the years before those we took under
analysis.
We therefore searched for the alcoholic beverage industry in the world and found a site that gave us
some useful data to be able to do a ratio analysis. However, it must be taken into account that
although beer dominates this industry, it contains other products besides beer, namely wine and
spirits.
Regarding the alcoholic beverage industry, it is highly regulated and this is a very competitive
sector that involves the manufacture, distribution and sale of alcoholic beverages, including beer,
wine and spirits. It is a global industry that generates considerable revenue and employs millions of
people worldwide. The industry is made up of various players. As for the brewing industry we
could have small independent craft breweries and distilleries and large multinational corporations.
The industry has faced many challenges in recent years, including changing consumer preferences,
health concerns and regulatory pressures. Despite these challenges, the industry continues to evolve
and innovate, with new products, like non-alcoholic beer, and technologies emerging to address
these issues and meet the changing needs of consumers
4.1 Profitability ratios
For profitability ratios we have chosen to analyze the following ratios: the return on equity (ROE),
the return on assets (ROA), the return on sales (ROS) and the gross margin.
We calculated the ROE ratio by dividing the company's profit by the average of the respective total
amount of equity. Heineken's return on equity decreases in 2022 and has a value of 14.6%, which
means that the company is generating a return of 14.6 cents on each dollar of shareholders’ equity.
14
See Appendix 3 for details.
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This is a good indication that Heineken is efficiently using its equity to generate profits and has a
good profitability. In contrast, Carlsberg has a ROE of only 0.26%, which suggests that Carlsberg is
not generating significant profits for its shareholders. One may think that the decrease in the ratio is
due to a decrease in profit and consequently in earnings, but we can observe a decrease in ROE in
both companies and also in the alcoholic beverage industry, where ROE for 2021 is 7.98% and
ROE for 2022 corresponds to 6.72%. This decrease affects Carlsberg much more, which sees its
ratio drop from 17.4% in 2021 to 0.26% in 2022. This drastic reduction is due to the large expense
they had after separating the Russian business from the rest of the group, following Russia's
invasion of Ukraine. In fact, the profit went from 8’009 million euros in 2021 to 108 million euros
in 2022. The lowering of profit related to a fairly high average total equity thus led to the fall in the
ratio. It’s interesting to notice that, before the divestment in the Russian operations in March 2022,
Carlsberg performed in a similar way to Heineken. In fact, if we calculate the previous ratio
without considering this divestment in the Russian market, we noticed that the ratio is pretty similar
to the Heineken’s one. For 2022, Carlsberg would have had a ROE of 19.61%.
For the ROA ratio, we take for each company the profit plus the interest expenses, and we have
divided this sum by the average of the total assets. This ratio shows that Heineken in 2022
generated a return of 6.9 cents on each dollar invested on its assets. This is a good indication that
Heineken is effectively using its assets to generate profits. This ratio has had a small decrease, from
8.7% in 2021 to 6.9% in 2022, but is still higher than the average in the alcoholic beverage industry
which is 2.75%. On the other hand, Carlsberg has an ROA of 0.52%, which suggests that Carlsberg
is not generating significant profits from its operations, again due to the separation from operations
in Russia. In fact, excluding the losses caused by this divestment, we note that Carlsberg's ROA is
equivalent to 6.3%.
The return on sales (ROS) was calculated by dividing the profit by the revenue. For Heineken we
obtained a result of 8.8% in 2022, which indicates that the company is generating a return of 8.8
cents on each dollar of sales. This is a good indication that Heineken is able to effectively manage
its operating expenses and generate profits from its sales. In contrast, Carlsberg has an ROS of only
0.15%, but without considering the losses caused by the separation from Russia, the ROS would
have been 11.6% in 2022, also a little bit higher than the Heineken’s one.
In terms of gross margin, the one for Heineken corresponds to 46.3%, which indicates that the
company is able to maintain a high level of profitability after deducting the cost of goods sold. This
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is a positive sign for Heineken as it suggests that the company is able to price its products
effectively and manage its costs well. Carlsberg, on the other hand, has a gross margin of 45.6%,
which is slightly lower than Heineken's gross margin, but still within a reasonable range. The ratio
for both companies has decreased since 2021, but the decrease is minimal and does not cause
problems for either company.
Overall, Heineken's profitability ratios are generally stronger than Carlsberg's ratios. Heineken has a
higher ROE, ROA, and ROS, as well as a slightly higher gross margin, indicating that the company
is more profitable and efficient in generating profits.
4.2 Financial Structure ratios
For financial structure ratios, we have chosen to analyze the following ratios: the day’s receivables
and the day’s payables.
The day’s receivables ratio tells us how long it takes a company to collect payment from its
customers after a sale is made and measures how many times the receivables are converted to cash
liquidity during a certain period. Heineken has a day’s receivables ratio of 43 days in 2022 and 44
days in 2021, which indicates that it takes the company around 43-44 days on average to collect
payment from its customers. Carlsberg in this case performs better than Heineken, with a lower
day’s receivables ratio of 28 days in 2022 and 29 days in 2021, indicating that it collects payments
from its customers more quickly. A high day’s receivables ratio suggests that a company is taking
longer to collect payment from its customers, which impacts its cash flow and liquidity as analyzed
above.
The day’s payables ratio measures how long it takes a company to pay its suppliers for goods or
services. Heineken has a day’s payables ratio of 90 days in 2022 and 95 days in 2021, which
indicates that it takes the company around 90-95 days on average to pay its suppliers. Carlsberg has
a higher day’s payables ratio of 111 days in 2022 and 113 days in 2021, indicating that it takes
longer to pay its suppliers than Heineken. A high day's payables ratio can be seen as positive since
it implies that the firm holds the cash to pay its suppliers for longer and could use this cash in a
better way to maximize its profits, also a high ratio means that the firm has more bargaining power
over its suppliers. It can also be viewed negatively because it can lead to the belief that the company
has problems and is unable to pay its short-term debts on time and thus bring down the company's
reputation in the eyes of potential new suppliers.
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These two ratios must be balanced, because if a company has more outflow than the inflow it can be
a problem for its liquidity. However, this is not the case for either Heineken or Carlsberg. If
Heineken takes 44 days to collect payments from its customers and 90 days to pay its suppliers, on
average it will have 45 days of the additional cash on hand, while for Carlsberg the days are almost
twice as long.
4.3 Liquidity ratios
For liquidity ratios we have chosen to analyze the following ratios: the cash ratio, the quick ratio
and the operating cash flow ratio.
The cash ratio gives us better information about the company's ability to pay back its current
liabilities, this is because cash and cash equivalents are available at the same time. Instead, for other
current assets it can take days longer to actually have them. Although it is unlikely that a large
company will keep so much cash on its balance sheet, this is because without investment the money
will remain unused and will not produce any economic return. Heineken remains with a good cash
ratio which is worth 19.5%, although this has decreased since 2021, this means that with the cash it
has, Heineken is able to pay 19.5% of its short-term debts. The values for Carlsberg are similar to
Heineken, of 18.3% in 2022 and 19.3% in 2021.
The second ratio we decided to analyze for liquidity is the quick ratio, this is because it informs us
about how much the company is able to pay current liabilities with quick assets, i.e., assets that they
have at the same time (such as cash and cash equivalents) and trade receivable that can be turned
into liquidity quickly based on the terms that the company has decided to give to its customers. We
know that on average it takes Heineken from 43-44 days to collect payments from its customers,
while for Carlsberg the days are about 29 days. Heineken has a quick ratio of 51.4% so it manages
to cover 51.4% of its current liabilities with the cash it has at the same time and the trade receivable
it collects in an average of 44 days. Carlberg has a lower ratio, of 27.1%, but manages to receive
money from its customers in less time and thus turn trade receivable into actual cash faster. We
chose these ratios instead of the current ratio because they give us better information about the
company's current liquidity. In the current ratio there are items, such as inventory, that take longer
or are more difficult to turn into cash.
The last ratio that was calculated is the operating cash flow ratio, which measures the amount of
current liabilities that can be covered with the cash flow generated by the company from its
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operations during the year. Heineken, with a cash flow ratio of 39.9 % manages to cover practically
40% of its current liabilities through the cash flow generated by its operations in 2022, slightly less
than 2021 (42.4%). Carlsberg, on the other hand, thanks to the cash flow from its activities in 2022
covers 26.6% of current liabilities. For the alcoholic beverage industry, we were only able to find
the quick ratio, which in 2022 is 30 % and in 2021 35%. So, we see that in the two years it is
normal for the industry that this has decreased, Heineken still remains above the industry average
regarding this ratio, while thanks to the other ratios we confirm that Heineken's liquidity is very
good, especially compared to Carlsberg, where its ratios are always lower.
4.4 Risk ratios
For risk ratios we have chosen to analyze the following ratios: the debt-to-equity ratio (D/E), the
self-financing ratio and the equity ratio.
The D/E ratio is a measure of a company's leverage, and it indicates how much debt a company is
using to finance its operations rather than its own resources. Heineken has a D/E ratio of 139.1% in
2022 and 148% in 2021, which indicates that the company has a relatively high level of debt
compared to its equity. Carlsberg has an even higher D/E ratio of 232.2% in 2022 and 159.2% in
2021, suggesting that the company is using a significant amount of debt to finance its operations.
The industry average D/E ratio is much lower, at 0.07% in 2022 and 0.01% in 2021. Heineken's and
Carlsberg's D/E ratios are both significantly higher than the industry average, which suggests that
both companies are relying heavily on debt financing to grow their businesses. However, Carlsberg
has a much higher D/E ratio than Heineken, indicating that it is taking on more debt relative to its
equity. If the ratio is too high the company takes more risk and will have to use a significant portion
of its profits to service its debt.
In addition, with the self-financing ratio we wanted to show the company's ability to finance its
growth and investment using its own internal funds, without having to rely on external sources of
financing such as debt or equity. We calculated it for both companies by dividing retained earnings
by the total amount of equity. Heineken's self-financing ratio remained high at 83.7% in 2022 and
84% in 2021, indicating that the company is able to fund a significant portion of its investments
using its own resources. This is generally seen as a positive sign, as it reduces the company's
reliance on external financing sources. Also, Carlsberg has a relatively high self-financing ratio,
even if in 2022 it has decreased, going from 87.4% to 83.7%. This suggests that Carlsberg may
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have relied slightly more on external financing in 2022 compared to the previous year. However,
we noticed that both companies have a quite high self-financing ratio. This may also indicate that
the companies are not taking advantage of profitable investment opportunities, and so losing
different possibilities to make more profit.
We could have also analyzed the leverage ratio, but we had preferred to look at the equity ratio, that
is its opposite. We preferred the equity ratio because it shows how much the company financed its
assets using equity instead of taking on additional debt. So, it is more related to the self-financing
ratio. A higher equity ratio is generally seen as a positive sign, as it indicates that the company is
less reliant on debt and is in a better position to weather financial challenges. Heineken's equity
ratio increased slightly from 40.3% in 2021 to 41.8% in 2022. This means that the company's assets
are largely financed by debt, rather than equity. But still higher than Carlsberg. Carlsberg's equity
ratio decreased significantly from 38.6% in 2021 to 30.1% in 2022. This means that a higher
proportion of the company's assets are financed by debt. While some level of debt is necessary for
most companies, a high debt-to-equity ratio, as seen previously, can be a cause for concern, as it
may make the company more vulnerable to financial risks and economic downturns.
Overall, Heineken appears to be in a stronger financial position than Carlsberg, based on these
ratios. However, it's important to keep in mind that financial ratios are just one aspect of a
company's overall performance and should be considered in conjunction with other factors such as
market trends, competition, and management strategy.
4.5 Capital Market ratios
For the capital market ratios, we have chosen to analyze the following ratios: the basic earnings per
share (EPS) and the price-to-earnings ratio (P/E).
The earnings per share (EPS) is a financial ratio that helps us to see the portion of a company's
profit allocated to each outstanding share of common stock. In addition, EPS is an important metric
used by investors and analysts to evaluate a company's profitability and potential for growth. EPS
tells how much money the company makes per share from its stock, so a higher EPS indicates that a
company is generating more profit per share, which is generally seen as a positive sign by investors,
who will pay more for a company’s shares. We did not have to calculate it, as this ratio was already
in the 2022 annual report of the two companies. The EPS of Heineken has decreased from 5.77 in
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2021 to 4.66 in 2022, indicating a decline in the company's profitability. In contrast, Carlsberg's
EPS has been negative, -7.6 in 2022, indicating that the company has incurred a money loss.
However, in 2021, Carlsberg's EPS was positive at 47.6, indicating that the shares were even more
profitable than Heinekens’ in that year.
Regarding the price-to-earnings (P/E) ratio, it is a financial metric that is used to evaluate a
company's stock price relative to its earnings. We calculated it for both companies by dividing the
current market price of a share by the company's EPS. The P/E ratio provides insight into how
much investors are willing to pay for a company's earnings. A high P/E ratio typically indicates that
investors have high expectations for the company's future earnings growth and are willing to pay a
premium for the stock and vice-versa for a low P/E ratio. The P/E ratio of Heineken has increased
from 17.1 in 2021 to 18.9 in 2022, suggesting that the market is optimistic about the company's
future earnings growth potential. The P/E ratio of Carlsberg has decreased significantly from 23.7 in
2021 to -121.5 in 2022, indicating that the market is pessimistic about the company's future
earnings growth potential or that it has suffered significant losses in the current year. At the
alcoholic beverage industry level, P/E ratios for 2021 and 2022 are 19.41 and 22.16, respectively.
This suggests that the alcoholic beverage industry is experiencing some growth potential, as
investors are willing to pay more for each unit of earnings from companies in this industry.
In summary, Heineken has experienced a decline in profitability, but the market is still optimistic
about its future earnings growth potential. Carlsberg has suffered a significant loss, and the market
is pessimistic about its future earnings growth potential. The alcoholic beverage industry as a whole
appears to be experiencing some growth potential, as reflected in its higher P/E ratio compared to
the individual companies.
4.6 Conclusion
After all the ratio analysis we can conclude that in general, Heineken seems to be better positioned
than Carlsberg. Heineken has higher profitability and liquidity ratios, while Carlsberg has a higher
solvency ratio in terms of self-financing. In addition, we can notice that Carlsberg had a similar
performance to Heineken, but what brought its performance down was the disinvestment made in
2022 by the Russian business. Heineken is one of the strongest companies in the brewing industry
and this was confirmed by the analysis done earlier. We had seen some lowering of its ratios, but it
54
still remains good, since the industry has also experienced the same kind of lowering, and yet these
decreases for Heineken are minimal. The company ends 2022 with a good performance.
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Conclusion
Through the development of this report, we were able to give an overview of what a financial
analysis is. In fact, the main objective of the latter is to estimate the value of the company. To do
this it is necessary to make an estimate of the company's future revenues, costs, etc.
After developing the four main points of our report in detail, we were able to get a more precise
overview of each of the four elements. Regarding the economic characteristics of the brewing
industry, the 5+1 Porter’s forces helped us to better understand the competition inside the beer
market.
In the strategy analysis, we found that one of Heineken’s strengths is its wide product portfolio.
New product development allows the company to maintain competitiveness in the market.
Additionally, Heineken differentiates themselves with marketing campaigns for the parent brand
that encourage responsible drinking. All these factors contribute to make the Heineken group a
global market leader.
Regarding the accounting analysis, we concluded that there were some changes made to accounting
methods, but they did not disrupt the financial statements. The three main concerns we had were the
lack of comments on reserves and provisions, inconsistencies between what the Executive Board
said and what the income statement showed about their financial results, and exceptional items
related to the Papua New Guinea case. Apart from these three points, we did not discover any
abnormal elements that could influence future results.
After analyzing the financial ratios, we can conclude that Heineken is generally better positioned
compared to Carlsberg. The main issue for Carlsberg was the divestment of their Russian business,
which negatively impacted their performance. Despite a slight decline in its ratios, Heineken
remains one of the strongest companies in the brewing industry.
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References
Heineken:
 Heineken N.V. Annual Report 2022. Retrieved April 26, 2023, from
https://www.theheinekencompany.com/sites/theheinekencompany/files/Investors/financial-
information/results-reports-presentations/Heineken-NV-Annual-Report-2022-
23_02_2023.pdf
 Heineken N.V. Annual Report 2021. Retrieved April 26, 2023, from
https://www.theheinekencompany.com/newsroom/download/1143698/heinekenn.v.annualre
port202125-02-2022.pdf
Carlsberg:
 Carlsberg Group Annual Report 2022. Retrieved April 26, 2023, from
https://www.carlsberggroup.com/media/55897/carlsberg-group-annual-report-2022.pdf
 Carlsberg Group Annual Report 2021. Retrieved April 26. 2023, from
https://www.carlsberggroup.com/media/48855/carlsberg-goup-annual-report-2021.pdf
For industry analysis:
 Beer market size, share & covid-19 impact analysis, by type (lager, ale, stouts, and others),
packaging (glass bottle and metal can), distribution channel (on-trade and off-trade), and
Regional Forecast, 2021-2028. (2022, January). Fortune Business Insight. Retrieved April
26, 2023, from https://www.fortunebusinessinsights.com/beer-market-102489
 Lindenberger, H. (2022, November 9). The trends and challenges the craft beer industry is
facing. Forbes. Retrieved April 26, 2023, from
https://www.forbes.com/sites/hudsonlindenberger/2021/11/30/the-trends-and-challenges-
the-craft-beer-industry-is-facing/
 Conway, J. (2023, March 9). Alcohol-free drinks CAGR by segment worldwide 2021-2025.
Statista. Retrieved April 26, 2023, from https://www.statista.com/statistics/1332215/alcohol-
free-drinks-cagr-by-segment-worldwide/
57
 Non-alcoholic Beer Market size by Product, by Technology and by Sales Channel. (2022,
November). Global Market Insights. Retrieved April 26, 2023, from
https://www.gminsights.com/industry-analysis/non-alcoholic-beer-market
Threat of new entrance:
 Brouster, G. L. (2023, April 15). Ouvrir une micro brasserie : étape par étape. The
Business Plan Shop. Retrieved April 26, 2023, from
https://www.thebusinessplanshop.com/fr/blog/ouvrir-une-micro-brasserie
 Crouzet , F. C. (2022, January 20). Les microbrasseries se multiplient en France. L'Express.
Retrieved April 26, 2023, from https://www.lexpress.fr/styles/plaisirs/vin-alcool/les-
microbrasseries-se-multiplient-en-france_1259365.html
Swiss federal law on the taxation of beer:
 Loi fédérale du 6 octobre 2006 sur l’imposition de la bière (LIB) (2006). Fedlex. Retrieved
April 26, 2023, from https://www.fedlex.admin.ch/eli/cc/2007/385/fr
French taxation on drinks:
 Taxation des Boissons. (2023). Entreprendre.service-public.fr. Retrieved April 26, 2023,

from https://entreprendre.service-public.fr/vosdroits/F32101
Tax on shopping and services UK:
 Service, G. D. (2014, December 18). Tax on shopping and services. GOV.UK. Retrieved
April 26, 2023, from https://www.gov.uk/tax-on-shopping/alcohol-tobacco
Market shares of craft beer in the US:
 Conway, J. (2022, May 4). Craft beer share of U.S. beer market 2021. Statista. Retrieved
April 26, 2023, from https://www.statista.com/statistics/1093653/craft-beer-dollar-share-of-
us-beer-market/#:~:text=In%202021%2C%20craft%20beer%20accounted,in%202021%2C
%20at%2026.8%20percent.
Market shares of beer worldwide:
58
 Conway, J. (2022, September 1). Beer Vendor Market Share Worldwide 2021. Statista.
Retrieved April 26, 2023, from https://www.statista.com/statistics/257677/global-market-
share-of-the-leading-beer-companies-based-on-sales/
Non-alcoholic beer market:
 Non-alcoholic beer market. (2022). Future Market Insights. Retrieved April 26, 2023, from
https://www.futuremarketinsights.com/reports/non-alcoholic-beer-market
Carlsberg's products:
 Products. (n.d.). Carlsberg Group. Retrieved April 26, 2023, from

https://www.carlsberggroup.com/products/
Law on the advertising of alcoholic beverages:
 Évolution de la réglementation de la publicité des boissons alcoolisées (fr). (2015). La

grande bibliothèque du droit. Retrieved April 26, 2023, from
https://www.lagbd.org/Évolution_de_la_réglementation_de_la_publicité_des_boissons_alco
olisées_(fr)#:~:text=L%27article%202%20de%20la%20loi%20n°%2091-32%20du,tranches
%20horaires%20déterminées%20par%20décret%20en%20Conseil%20d%27Etat.
Price elasticity:
 International, E. (2014, August 6). Price elasticities in Alcoholic Drinks. Euromonitor.

Retrieved April 26, 2023, from https://www.euromonitor.com/article/price-elasticities-in-
alcoholic-drinks
Brands owned by Heineken:
 Heineken Brands. (n.d.). Is it Big Beer?. Retrieved April 26, 2023, from
https://isitbigbeer.com/brand/heineken
Heineken Brewing Process:
 Making great beer and cider. (n.d.). Heineken. Retrieved April 26, 2023, from
https://www.heinekenireland.ie/about-us/making-great-beer-and-cider/
59
 Brewing beer. (n.d.). Heineken. Retrieved April 26, 2023, from
https://www.heineken.com/global/en/our-story/brewing
Brewing Process:
 Ettinger, D. (2022, June 17). How Is Beer Made?. Insiders, Reviews. Retrieved April 26,
2023, from https://www.insider.com/guides/kitchen/how-is-beer-made
 Beer 101: How is beer made?. (n.d.). Beer Store. Retrieved April 26, 2023, from
https://www.thebeerstore.ca/articles/the-brewing-process/
 Brewing. (n.d.). Wikipedia. Retrieved April 26, 2023, from
https://en.wikipedia.org/wiki/Brewing
 Thanos, S. (2023, January 10). Non-Alcoholic beer Brewing 101: Tips, Tricks and Why You
Should Give it a Shot. Homebrew Academy. Retrieved April 26, 2023, from
https://homebrewacademy.com/how-to-brew-non-alcoholic-beer/
Heineken, sponsoring:
 Sponsorships. (n.d.). Heineken. Retrieved April 26, 2023, from

https://www.heineken.com/global/en/sponsorships
 Heineken kicks off its rugby world cup sponsorship. (n.d.). Heineken. Retrieved April 26,
2023, from heineken-kicks-off-its-rugby-world-cup-sponsorship
 Heinken LED. (n.d.). Sport Signage. Retrieved April 26, 2023, from https://www.sport-
signage.com/projects/heineken-led/
Heineken, ads:
 Campaigns. (n.d.). Heineken. Retrieved April 26, 2023, from

https://www.heineken.com/lb/en/campaigns
 Heineken. (2022, March 5). The Night is Full of Great Drivers. [Video]. YouTube.
Retrieved April 26, 2023, from https://www.youtube.com/watch?v=ZT4JKBqrxFw
 Heineken. (2020, February 6). Cheers to whatever you ordered. [Video]. YouTube.
Retrieved April 26, 2023, from https://www.youtube.com/watch?v=dD6r53DWxwk
 Heineken. (2018, May 30). Now You Can, Parking. [Video]. YouTube. Retrieved April 26,
2023, from https://www.youtube.com/watch?v=KNZCe3I_X7o
60
IAS 29 Financial Reporting in Hyperinflationary Economies:
 IAS 29 Financial Reporting in Hyperinflationary Economies. (2023). IFRS Retrieved April

26, 2023, from https://www.ifrs.org/issued-standards/list-of-standards/ias-29-financial-
reporting-in-hyperinflationary-economies/
Ethiopia hyperinflation:
 Dadhi, H. (2022, July 5). Hyperinflation in Ethiopia is the product of cascading missteps.
Quartz. Retrieved April 26, 2023, from https://qz.com/africa/2185006/inflation-in-ethiopia-
has-remained-above-25-percent-for-a-year
Brazilian case of slave labor:
 Brazil: Ambev and Heineken fined for slave labour in outsourced company; victims were
immigrants from Venezuela and Haiti. (2021, May 18). Business & Human Rights Resource
Centre. Retrieved April 26, 2023, from https://www.business-humanrights.org/en/latest-
news/brazil-ambev-and-heineken-fined-for-slave-labour-in-outsourced-company-victims-
were-immigrants-from-venezuela-and-haiti/
 Heineken Brazil has addressed labour violations at Transportadora Sider. (2023, April 02).
Heineken. Retrieved April 26, 2023, from
https://www.theheinekencompany.com/newsroom/heineken-brazil-has-addressed-labour-
violations-at-transportadora-sider/
The closure of the Schiltigheim brewery:
 La fermeture annoncée de la brasserie Heineken de Schiltigheim menace 220 emplois.

(2022, November 14). Le Monde. Retrieved April 26, 2023, from
https://www.lemonde.fr/economie/article/2022/11/14/la-fermeture-annoncee-de-la-
brasserie-heineken-de-schiltigheim-menace-220-emplois_6149859_3234.html
 Heineken annonce la fermeture de sa brasserie de Schiltigheim. (2022, November 14). SWI
Swissinfo.ch. Retrieved April 26, 2023, from https://www.swissinfo.ch/fre/heineken-
annonce-la-fermeture-de-sa-brasserie-de-schiltigheim/48055616
The closure of Constanta brewery in Romania:
61
 Romania: Heineken to close Constanta brewery. (2022, September 20).Inside. Retrieved
April 26, 2023, from https://www.inside.beer/news/detail/romania-heineken-to-close-
constanta-brewery/
 Chirileasa, A. (2022, September 21). Heineken to close down one of its plants in Romania.
Romania-Insider.com. Retrieved April 26, 2023, from
https://www.romania-insider.com/heineken-close-plant-romania-2023
ESG:
 Heineken N.V. reports 2022 full years results. (2023, February 15). Heineken. Retrieved
April 26, 2023, from https://www.theheinekencompany.com/newsroom/heineken-nv-
reports-2022-full-year-results/
Ratios for industry:
 Alcoholic Beverages Industry. (n.d.). CSI Market.com. Retrieved April 26, 2023, from
https://csimarket.com/Industry/industry_ManagementEffectiveness.php?ind=501
 Alcoholic Beverages. (n.d.). Statista. Retrieved April 26, 2023, form
https://www.statista.com/markets/415/topic/464/alcoholic-beverages/#definition
Carlsberg is trying to sell his company in Russia:
 Alderman, L. (2023, March 2). Leave Russia? A Year Later Many Companies Can’t, or
Won’t. The New York Times. Retrieved April 26, 2023, from
https://www.nytimes.com/2023/03/02/business/russia-companies-exit.html
Consumption habit of Generation Z:
 Carswell, W., & Henley, A., & Churi, J. (2021, September 16). Insights into the Gen Z
Drinker: Alcohol Consumption, Drinking Habits & Trends. Numerator. Retrieved April 26,
2023, from https://www.numerator.com/resources/blog/gen-z-drinking-trends
Cider market:
 Jaya, B., Roshan, D. (2022, February). Cider market by type. Retrieved April 26, 2023, from
https://www.alliedmarketresearch.com/cider-market
62
Beer Market in Asia:
 Asia Pacific Craft Beer Market. (2023, March). Market Data Forecast. Retrieved April 26,
2023 from https://www.marketdataforecast.com/market-reports/apac-Craft-Beer-Market
63
Appendix
Appendix 1
Ritchie, H., & Roser, M. (2018, April). Alcoholic Consumption. Retrieved April 20, 2023, from
https://ourworldindata.org/alcohol-consumption
64
Appendix 2
Extract from Heineken’s Annual Report 2022, note 13.3
65
Appendix 3
66

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Summary

1.1 5+1 Porter’s forces for big brewing companies.....................................................................4

1.1.1 Threat of New Entrance: LOW......................................................................................4

2.1 Heineken’s Products..............................................................................................................9

2.1.1 BCG matrix by geographical zone.............................................................................11

2.2 Technology required to bring products to the market.........................................................14

2.3 Heineken’s knowledge base................................................................................................18

2.4 Heineken’s ESG performance.............................................................................................20

2.4.1 Corporate Governance Mechanisms............................................................................20

2.5 Key value drivers.................................................................................................................27

3.2 Checklist - Financial Statement Positions...........................................................................30

3.3 Summary and criticism on the accounting analysis.............................................................46

4.1 Profitability ratios................................................................................................................48

4.2 Financial Structure ratios.....................................................................................................50

4.3 Liquidity ratios.....................................................................................................................51

4.4 Risk ratios............................................................................................................................52

4.5 Capital Market ratios...........................................................................................................53

1.1 5+1 Porter’s forces for big brewing companies

1.1.1 Threat of New Entrance: LOW

Brewing market is saturated.

1.1.2 Threat of substitutes: LOW

Beer is not a necessary product.

1.1.4 Bargaining power of suppliers: HIGH

1.1.5 Rivalry among existing firms: HIGH

Brewing market is saturated. There are 10 major companies in the market.

1.1.6 +1 → Public authorities: HIGH

2.1 Heineken’s Products

AREA Sales volume Revenue Profit

(in million hectoliters) (in million €) (in million €)

2022 2021 2022 2021 2022 2021

Americas 88.5 mhl 85.4 mhl 9.421 m 7.226 m 1.391 m 1.215 m

Asia Pacific 48 mhl 29.4 mhl 4.652 m 2.764 m 1.235 m 753 m

Europe 81.2 mhl 77.5 mhl 11.362 m 9.494 m 1.221 m 1.160 m

Cash cows Stars

Dogs Question marks

2.1.2 BCG matrix by type of beverage

Cash cows Stars

Dogs Question marks

Fig. 2: Heineken Lager production process

2.2.2 Cost structures

2.3 Heineken’s knowledge base

Fig. 5: Heineken’s Annual Report 2022, page 165

2.4 Heineken’s ESG performance

Fig. 6: Heineken’s Executive Team

Fig. 7: Heineken’s Annual Report 2022, extract note13.3

2.4.2 CSR Performance

Fig.8: Materiality Matrix

Fig.9 : Types of diversity among Heineken’s employees

 Diversification: In a highly competitive market such as the brewing industry, Heineken

3.2.1 General Questions

ANY INDICATIONS FOR HIDDEN RESERVES (ANY RED FLAGS)?

3.2.2 Balance Sheet (Assets)

WHICH INVENTORY ACCOUNTING METHOD IS USED (FIFO, LIFO, OR AVERAGE COST )?

STATEMENT PROVIDE INFORMATION ON THE PURCHASE PRICE , RESIDUAL VALUE ,

ACCUMULATED DEPRECIATION / AMORTIZATIONS , THE DEP/AMO. METHOD?

Accounting policies on the recognition on the intangible assets:

 Brands, customer-related and contract-based intangibles: if it is part of a business

 Software, research and development and other intangible assets: If purchased, it is

There is only an impairment test for goodwill and it is done annually.

For other than goodwill:

MEASURED ? ARE THERE SUBSTANTIAL REVERSALS OF PROVISION ?

A provision is recognized by Heineken when there is a present legal or constructive obligation

Fig. 10: Heineken’s Annual Report 2022, extract note 9.2